Expert Advice with Philippe Brach 30/01/2017
There really isn’t anything quite like entering a brand new property. Similar to a new car, there’s something pretty special about a new house or apartment, from that fresh paint smell to the shiny new finishings and newly laid carpet.
But new properties aren’t just attractive aesthetically; they’re also an attractive investment option for many property investors, including myself. Here’s why:
This is probably the most important item. As an example a new apartment worth $500K, at current interest rates, generates between $6K and $9K tax rebate, depending on various factors, including the investor’s marginal tax rate and assuming stable interest rates. This will make the difference between having a cash flow positive property and a cash flow negative one. Such a property would be currently cash flow positive by say $40 per week. If this property has been old with little claimable depreciation, the tax refund would have been say $2K to $3K and the property would be typically about $20 cash flow negative per week. In other words an older property requires a lot more rent than a new one to compensate for the lesser tax effect.
As a result, while tax benefits shouldn’t solely drive investment decisions – capital growth should - they are definitely part of the equation to help an astute investor with cash flow in the initial years.
Low maintenance and low cost
Generally speaking, a new property requires very little maintenance, compared to a property that’s say 10, 20 or 30 years old. All of the features and appliances are going to be in good condition and it’s highly unlikely an investor will have to face any of those issues that come with older properties such as wear & tear or failing appliances.
For investors, this is not only a convenience; it’s a very real advantage, because unexpected repairs and maintenance issues can wreak havoc with cash flows!
Certainly, a new property is not a guarantee against maintenance issues, but typically speaking, investors face much fewer repair headaches with new properties compared to older properties.
Investing in a new property can be a great way to secure good, long-term tenants. Like I touched on above, new properties have a particular charm about them that certainly extends through to potential tenants, not just buyers.
Renters love new properties and the opportunity to live in a brand new home is very alluring. New properties boast many mod cons which older properties lack, such as air conditioning, built-in wardrobes, security elevators and garages, dishwashers and more.
Furthermore, new properties typically feature modern designs and efficiencies, such as open plan living, MPRs (Multiple Purpose Room), or connection to the NBN – big draw cards for tenants, and usually these features will a prospective tenant over if they’re tossing up between a new property and an older one down the road.
And of course, all of these modern features enable the investor to charge a premium rent!
Remember, a new property can offer a stable, low-maintenance, hands off tax efficient route towards financial freedom.
He has over 15 years experience in property investment and has helped many first time and experienced investors achieve their goals. He is also the well-recognised author of the book ‘Creating Property Wealth in any Market’ which lays out in detail what it means to invest in property.